Bank of Queensland backs tech to cut costs

BoQ will start spending $100m a year on a tech-led efficiency program but warns investors this year’s cash earnings will be lower.

BoQ chief George Frazis Picture: Britta Campion

Bank of Queensland will undergo a digital transformation, reduce its product line and leverage technology to drive efficiencies and cut costs as part of a five-year turnaround program it hopes will improve customer experiences, generate sustainable and profitable growth and create long-term shareholder value.

The strategy update, released to the market on Thursday, also revealed how BoQ aims to embed an “empathetic culture” across the business and will focus on “niche segments” of the market, which it says provide the greatest opportunities to grow sustainable returns.

The bank’s growth will be underpinned by a strong balance sheet and a robust risk and regulatory compliance framework, it said.

Alongside the update, the lender also told shareholders it expects cash earnings in the 2020 financial year to be between 4 and 6 per cent lower than 2019 and will look to pay out a dividend ratio of 70 to 80 per cent of cash earnings.

“BOQ will build on its key strengths, differentiators, and strong customer engagement through an improved digital offering to deliver sustainable performance improvement,” chief executive George Frazis said.

“Our strategy combines traditional banking with contemporary digital capabilities to better serve our customers, deliver better products and services, be nimble and improve productivity.

“We will build on our existing competitive advantages in the knowledge that customers are increasingly looking for alternative ways to bank,” he added.

BoQ will invest $100m per year into the business up to 2022 to execute the strategy, before reducing its investment to $80m in 2023 and $60m in 2024. The investment will be partly financed through $90m in annualised savings it expects to make as a result of efficiency and productivity gains by 2023.

Ahead of the strategy update, Morgan Stanley analysts had warned clients that the bank’s return on equity was likely to decline further and its revised dividend payout ratio target was too high.

“Trading multiples are not cheap enough given a return on equity of around 7 per cent, the prospect of earnings per share downgrades and a further dividend cut,” the analysts said.

BoQ’s cash earnings slumped 14 per cent to $320m in the 2019 financial year as a result of slowing credit demand, lower interest rates, a rise in regulatory costs and an increase in bad debts.

Its share price has tumbled 18 per cent in the past year amid concerns about the under-pressure lender’s ability to turn its fortunes around. BoQ last closed at $7.31 before the strategy update was released to the market.